On March 7, 2016, Governor McAuliffe signed into law the Fantasy Contests Act (the “Act”), making Virginia the first state to formally regulate daily fantasy sports websites such as DraftKings and FanDuel. The Act distinguishes these daily fantasy sports websites from illegal gambling sites, and outlines how they may lawfully operate within Virginia borders. 

The Act defines a “fantasy contest” to include any online fantasy or simulated game or contest with an entry fee in which (i) the value of all prizes and awards offered to winning participants is established and made known to the participants in advance of the contest; (ii) all winning outcomes reflect the relative knowledge and skill of the participants and are determined by accumulated statistical results of the performance of individuals, including athletes in the case of sports events; and (iii) no winning outcome is based on the score, point spread, or any performance of any single actual team or combination of teams or solely on any single performance of an individual athlete or player in any single actual event.

Under the Act, all fantasy contest operators must register annually with the Virginia Department of Agriculture and Consumer Services (the “Department”). The initial application fee is $50,000. As a condition to registration, fantasy contest operators are required to, among other things, establish procedures that (i) verify that any fantasy player is at least eighteen years old, (ii) ensure that players who are the subject of a fantasy contest are restricted from entering a fantasy contest that is determined on the statistical results of a team on which such players are participants, and (iii) segregate player funds from operational funds in separate accounts, and requires operators to maintain a reserve in an amount sufficient to pay all prizes and awards. 

Fantasy contest operators are also required to contract annually with (i) a certified public accountant to conduct an independent audit, and (ii) a recognized testing laboratory to verify the procedures for fantasy contests, and to submit to the Department copies of such audit reports and laboratory testing reports. The Act sets forth certain penalties for failing to comply with the Act. The Act also provides that any fantasy contest conducted in accordance with the Act shall not constitute illegal gambling.